Holders rap Pac Brands on bonuses

Pacific Brands
, one of the worst performing listed consumer goods companies, has recorded a strike from shareholders unhappy with its executive remuneration.

But the board yesterday defended a decision to give senior executives bonus payments up to $910,000 despite the failure of management to meet performance hurdles.

Chairman
James MacKenzie
said the company would do the same again, even as votes cast ahead of the annual general meeting were 52.85 per cent against the short-term incentive program.

Under the program, chief executive
Sue Morphet
got 65 per cent of her maximum possible $1.4 million while chief financial and operating officer David Bortolussi received $505,845. The company paid the bonuses despite falling short of its own targets for senior executives.

“We recognise we operate in a new environment in terms of executive remuneration," Mr MacKenzie told The Australian Financial Review.

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“We’ve had some very constructive engagements with our major shareholders and we respect their views. But we’re confident we’ve made the right decision. If we had to make the decision again today, we’d make the same decision."

The rejection is the latest sign of a growing wave of shareholder impatience with executive salaries deemed excessive.

Pacific Brands said the early completion of a turnaround strategy that saved shareholders $150 million justified the payments, even though the company fell short of the target of 90 per cent of budgeted group earnings before interest, tax, amortisation and significant items.

In the year to June, Pacific Brands posted a net loss after tax of $131.9 million – down from the previous year’s $52.7 million profit – as it disposed of businesses and brands as part of the transformation program. Its shares have fallen 39 per cent since the start of the year, making them the sixth worst performer on the S&P/ASX 200’s 26-member consumer discretionary index.

“It’s pretty clear shareholders saw the disconnection in Pacific Brands between pay and performance," a director of governance consultants Ownership Matters, Dean Paatsch, said. “But they’re a pretty sharp board, and would no doubt would have got the message loud and clear."

A separate, binding vote to give Ms Morphet 1.87 million performance rights, equivalent to 85 per cent of her fixed annual remuneration, was passed by almost 98 per cent of votes cast. The award was based on a calculation of the company’s total shareholder return (TSR) and per-share earnings growth.

Richard Morgan from the Australian Shareholders Association criticised the way the long-term incentive plan was structured, saying it rewarded “average performance and not superior performance".

“We do not believe the grant of 50 per cent of the rights should be made when the company’s TSR just equals the median of the comparator group. We think about 10 per cent of the grant should be made at the 51st percentile of the comparator group and progressively increase, pro rata, up to 100 per cent at the 75th percentile," he said.

Ms Morphet warned earnings in the first half of the current year would be “materially" lower than a year earlier. “Market conditions have become more challenging so far this year and we expect this to continue in the near term. Underlying sales and earnings are down in the year to date, and below our initial initial expectations, even including the impact of lost sales at Kmart [which now stocks private label goods]." Underwear sales had been hard hit, she said. The shares fell 5.6 per cent to 59.5¢, their lowest in a year.